2019 (2) TMI 8 - AT - Central Excise

Valuation - manufacturers of rubber compound - removal of goods to M/s. HSI Automotives Ltd, who holds 100% of equity shares of appellant - short payment of duty - intent to evade or not - revenue neutrality present or not - Held that - In the present appeal, revenue neutrality is very much present since the goods manufactured by the appellant were removed only to their holding company M/s. HSI. It is true that the appellants have calculated the assessable value only at around 103% of the cost of production instead of 110%, as required by CAS-4 valuation method. In any case, even if the discharge of duty liability was at 110%, the Department would have been able to avail the same to that extent. It is seen that the appellants have discharged the entire duty liability in respect of the Show Cause Notice dated 01.05.2015 before the issuance of the same and even the remaining amounts proposed in the three Statements of Demand were paid up proximate to their issue - the short payment on the part of the appellant was not with any intention to evade payment of duty and further, since they were clearing the goods only to their holding company, there is definitely revenue neutrality in the entire transaction. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Valuation of rubber compound for duty payment under CAS-4 method, Short payment of duty liability, Imposition of penalty under Section 11AC of the Central Excise Act, 1944, Revenue neutrality in the transaction.

Analysis:

1. Valuation of Rubber Compound under CAS-4 Method:
The appellants, manufacturers of rubber compound, were found to have removed their products to a related company below 110% of the cost of production, leading to short payment of duty. The Department contended that the appellants did not follow the Cost Accounting Standard 4 (CAS-4) for valuation. The appellants later adopted CAS-4 method, paid the differential duty of around &8377; 5,25,85,400, and appointed an independent Cost Accountant to determine the cost of production.

2. Short Payment of Duty Liability and Imposition of Penalty:
Show Cause Notices were issued proposing demand and appropriation of the duty liability with interest and penalties under various provisions of law. The Commissioner confirmed the demands, leading to the appeal. The appellants argued that the short payment was unintentional, rectified before the notices were issued, and that the entire exercise was revenue neutral as the related company could only avail CENVAT Credit to the extent of duty discharged by the appellants.

3. Revenue Neutrality in the Transaction:
The Tribunal examined the concept of revenue neutrality in similar cases and held that when the transaction is revenue neutral, the demand of duty is unsustainable. Citing previous judgments, the Tribunal found that in the present case, the goods were cleared only to the related holding company, ensuring revenue neutrality. The Tribunal concluded that the short payment was not intentional, and the demands were set aside based on the principle of revenue neutrality, granting the appeals with consequential benefits.

In conclusion, the judgment focused on the valuation of rubber compound under CAS-4 method, the rectification of short payment of duty liability, the concept of revenue neutrality in the transaction, and the subsequent setting aside of demands based on the principle of revenue neutrality.